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Fortum and Uniper – stronger together- Creating a leader in the European energy transition
Transaction update
October 2019
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DisclaimerThese materials do not constitute research. The materials have been prepared based upon information that Fortum believes to be reliable. Market data presented is based on the information and belief of Fortum's management and has not been independently verified. Fortum makes no representation or warranty, express or implied, as to the accuracy or completeness of the information contained in these materials, and accordingly Fortum accepts no responsibility or liability for the information contained herein.
Fortum does not provide legal, accounting or tax advice and the recipient of these materials is strongly advised to consult its own independent advisors on any legal, tax or accounting issues relating to these materials.
The circulation of these materials may, in certain countries, be subject to specific regulation. Consequently, persons in possession of these materials are deemed to be advised of possible local restrictions and to have complied with them.
Nothing in these materials shall constitute or form part of any legal agreement or any offer to sell, or the solicitation of any offer to buy, any securities or to syndicate or the solicitation of any offer to syndicate any financial instruments.
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• Fortum has entered into a transaction agreement with Elliott and Knight Vinke to acquire at least an additional 20.5% in Uniper for approximately EUR 2.3 billion, corresponding to EUR 29.93 per share, taking its ownership to at least 70.5% post closing
• Closing of transaction is subject to regulatory clearance in Russia and the US
• Fortum intends to be represented on Uniper’s Supervisory Board commensurate with its ownership without delay
• Fortum offers comprehensive commitments to Uniper’s employees and rules out a domination and/or profit and loss transfer agreement or squeeze-out for at least two years
• Transaction financed with existing cash and credit facilities underwritten by Barclays Bank PLC, with Fortum committed to maintaining an investment grade rating post transaction
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Accelerating strategic realisation from Uniper investment
• Transaction delivers on Fortum’s vision and strategy, investing in a diversified European power generation with attractive hydro, nuclear and gas assets and a platform for growth
• Fortum and Uniper have the strategic mix of businesses and expertise required to successfully drive Europe’s transition from conventional to cleaner and more secure energy
• As a responsible and committed parent company, Fortum looks forward to working with Uniper’s management team and employees on the creation and implementation of a joint vision
• Fortum is committed to protecting the core interests of Uniper’s employees and to providing attractive prospects
Creating a leader in the European energy transition
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Transaction highlights
Agreement
• Fortum has entered into agreements with Elliott and Knight Vinke to acquire in excess of 20.5% in Uniper for approximately EUR 2.3 billion, corresponding to EUR 29.93 per share, increasing Fortum’s share in Uniper to more than 70.5% and the total investment in Uniper to approximately EUR 6.2 billion (average price paid EUR 23.97 per share)
• Fortum rules out a domination and/or profit and loss transfer agreement (DPLTA) or squeeze-out for a period of at least two years
• Fortum intends to be represented on Uniper’s Supervisory Board commensurate with its ownership without delay• Fortum offers commitments to Uniper’s employees and seeks continued dialogue with employee representatives
• Closing of the transaction, subject to customary regulatory clearances in Russia and the United States, is expected by the end of the first quarter of 2020. Fortum is in discussions with the Russian state authorities and has made a preparatory filing to the Russian Federal Antimonopoly Service
• No further European Commission clearance is required; in 2018, Fortum already received unconditional merger clearance from the Commission
Regulatory approvals
Financials
• Fortum will fully consolidate Uniper as a subsidiary in its financial statements from closing of the transaction• The transaction will be financed with existing cash resources and committed credit facilities underwritten by Barclays
Bank PLC• Fortum is committed to maintaining an investment grade rating post transaction and to strengthening its financial profile
longer term, which will provide appropriate financial stability and support to the enlarged group
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Illustrative combined key financials
6
Financial information in the table below is derived and based on Fortum's Half-year Financial Report January-June 2019 and Financials 2018 and Uniper‘s Half-year Interim Report 2019 and Annual Report 2018
(1) Comparable EBITDA is based on the Fortum's Comparable EBITDA and Uniper‘s Adjusted EBITDA as defined in Fortum’s and Uniper's financial statements. No impacts from the assumed transaction has been included. (2) Capex is based on Fortum's reported Capex and Uniper's reported Investments.(3) Fortum's interest-bearing liabilities and liquid funds as defined in Fortum's financial statements. Uniper‘s Interest-bearing liabilities includes 'Financial liabilities and liabilities from leases' as defined in Uniper’sfinancial statements (but excludes ‘Margining liabilities’ amounting to EUR 1,002 million). Liquid funds as defined in Uniper‘s financial statements. Please see further information regarding Fortum's Net debt and Uniper‘s Net financial position and Economic net debt in their respective financial statements.(4) ‘Impact from transaction’ is based on the acquisition of approximately 20.5% of Uniper’s outstanding share capital at a price of EUR 29.93 per share.
EUR million Fortum LTM Q2 2019 Uniper LTM Q2 2019 Impact from transaction(4) Combined LTM Q2 2019Sales 5,404 78,928 84,332Comparable EBITDA(1) 1,621 1,260 2,881Capex(2) 715 638 1,353Interest-bearing liabilities, 30 June 2019(3) 6,719 1,570 2,253 10,542Liquid funds, 30 June 2019(3) 1,297 717 2,014Net interest-bearing liabilities, 30 June 2019(3) 5,422 853 2,253 8,528Number of employees, 30 June 2019 8,383 11,962 20,345
Combined key financials are presented for illustrative purposes only and they do not include possible impacts from aligning differences in accounting principles, effects from co-owned power companies or eliminations of sales, purchases, receivables and payables between the Groups.
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Fortum is committed to protect the interests of Uniper and its employees
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A dedicated workforce is the foundation for the current and future success of Uniper and Fortum
Fortum is committed to protecting the interests of the employees and fully acknowledges the integrity of existing employee rights
Priorities
Our commitments
… compulsory redundancies
General Principle: Partnership Approach – Joint Committee to create and implement vision
No changes to existing shop and collective bargaining agreements(2) or
similar agreements
No changes to employers' collective bargaining jurisdiction or the existing
level of co-determination
Fortum has a good track record in continuous employee dialogue, and continuous improvement of safety, well-being and working conditions of its employees
1Detailed content and the duration of these commitments to be discussed and agreed with Uniper and its employee representatives2Betriebsvereinbarungen/ Tarifverträge
No DPLTA or squeeze out for a period of 2 years
… change to corporate seat
Fortum will not cause Uniper to implement(1) …
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Fortum’s strategy is based on the long-term vision: ‘For a cleaner world’
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Ensure value creation from investments and portfolio optimisation
Pursue operational excellence and increased flexibility
Drive focused growth in the power value chain
Build options for significant new businesses
Today
Profitability
Time
Increasing uncertainty
3.
4.
Illustrative
2.
1.
2020s 2030s
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Fortum’s core beliefs and key industrial priorities
9
Key industrial priorities balance the energy trilemma
Security of Supply Sustainability
Affordability
Determined reduction of emissions and
non-renewable resources with a focus on power and heat
Value and optionality from globally scalable
business models
Security of supply through increasingly
clean gas and optimized flexibility
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Fortum and Uniper together create a European energy transition leader
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Scale, competences and resources to prosper, grow and leadenergy transition to a clean and secure energy future
Diversified portfolio in hydro, nuclear and gas-fired generation, and also in coal
1
Strong asset base along the entire gas value chain2
Nordic leader in district heating, recycling and waste solutions, and electricity retail solutions
5
Strong experience and attractive growth opportunities in industrial customer solutions
6
Energy sector is undergoing a transition, markets are growing and competitors are consolidating
Respected partner in developing policies and regulation on national and EU level
7
Scale and expertise to drive R&D in important areas for transition, such as hydrogen, batteries, e-mobility, bio-based products
8Strong trading competences
3
+
Track record and growth pipeline in wind and solar4
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Scale, competences and resources to prosper, grow and lead European energy transition
GermanyNL
UK
NordicsRussia
Poland
Baltics
Hungary+ India
Q2 2019 LTM combined Comparable EBITDA(1)
Combined capacity split(3)
Totalc.€2.9bn
FortumEUR 1.6bn
UniperEUR 1.3bn
Hydro
Nuclear
Thermal
Gas
Low + Zero emission
Coal phased out over time
16%
8%
32%
36%7%
#3#2
#2
Other
Fortum Uniper Combined market positions Combined geographical presence
____________________________(1) Comparable EBITDA is based on the Fortum's Comparable EBITDA and Uniper's Adjusted EBITDA as defined in Fortum’s and Uniper's financial statements. No impacts from the assumed transaction has been included. (2) Market positions for Central-Europe/Europe and Nordics are based on total installed capacity; the market position in Russia is based on thermal capacity. (3) Based on 31 Dec. 2018 capacity.
Total50.3GW
(1)
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Combined power generation assets(2)
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Coal share from generation and from sales(calculated from disclosed numbers assumptions below)
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Portfolio well positioned for energy transition- overall combined share of coal based activities is moderate
Fortum 2018 Uniper 2018 CombinedSales, MEUR 5,242 78,176 83,418(1)
Coal and lignite generation based sales, MEUR 242 1,590 1,832(1)
Share of coal based sales, (%) 5 2 2Generation (power and heat), TWh 104 114 218Coal and lignite based, TWh 7 32 39Share of coal based generation, (%) 7 28 18
Note: For Fortum avg. coal based power sales price assumption 35 €/MWh and for heat 35 €/MWh, for Uniper avg. coal based sales price assumption 50 €/MWh.Fortum data includes also heat production, Uniper data only power generation.
1. Combined sales is presented for illustrative purposes only and do not include possible impacts from aligning differences in accounting principles, effects from co-owned power companies or eliminations of sales between the Groups.
Source: Fortum Sustainability report 2018, page 22 and Fortum Financial statements and operating and financial review 2018, page 2. Uniper Sustainability Report 2018, page 62.
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Combination supports sustainability, affordability and security of supply
Determined reduction of emissions and the use of non-renewable resources
Security of supply through increasingly clean gas and optimised flexibility
Value and optionality from globally scalable business models
• Hydropower competences• Nuclear power competences• Gas-fired power/heat competences• Services: Industrial customer
solutions, nuclear services, thermal services
• Wind and solar track record• Recycling and waste-to-energy
expertise• Bio-based product development• E-mobility
• Global gas solutions• Gas wholesale and global
commodity trading• Industrial customer solutions
• Flexible hydro-power• Gas-fired power/heat competences
• Retail customer solutions • Competences along the entire gas value chain
• Hydrogen / clean gas development
+
Utilising combined competences creates a true international leader in the energy transition
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Strong rationale for combination with attractive Uniper portfolio
European Generation
Global Commodities
International Power
• A leading European generator with ~24GW of capacity (mainly dispatchable)
• Diversified across technologies and geographies, including significant hydro (3.6GW) and nuclear (1.9GW) capacities
• Strong capabilities in construction, operations and maintenance
• A leading physical energy trader with a global footprint, including a portfolio of long term gas contracts (400TWh)
• Significant revenues driven by optimization and trading activities
• Large gas midstream business, including storage and pipeline interests
• Participation in Nord Stream 2 gas pipeline
• Unipro is the number 3 privately-owned Russian generation company
• 11.1 GW of generation assets / 47 TWh of electricity generated
• Some of the most efficient heat generating plants in Russia
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Uniper operating segments
~39% of Adj. EBIT 2018
~32% of Adj. EBIT 2018
~28% of Adj. EBIT 2018
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Extensive value creation opportunities through combined efforts
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Growth and new business creation
• Scale and cash flow generation enables significant growth investments
• Stronger presence in wider range of markets
• Industrial customer solutions and B2B services
• Storage and flexibility solutions
• Stronger voice on national and European level
• Waste to energy and recycling solutions
• Wind and solar growth
• Hydrogen, clean gas development
• eMobility
Operational excellence and cost
savings
• Fuel sourcing
• Procurement and real estate
• Best practice sharing and benchmarking in operations and maintenance
Significantly larger combination providing scale, competences and resourcesto prosper, grow and lead energy transition to a clean and secure energy future
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”Stronger Together”
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Appendix
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Fortum at a glance
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Foreign investors29.8%
FinnishState
50.8%
Other Finnish investors8.3%
Finnish households9.5% Financial and
insurance institutions1.7%
Power74.6 TWh
Natural gas 38%
Coal 3%Biomass 1%
Hydropower 26%
Wind 1%
Solar 0.5%Waste 0.5%
Heat29.8 TWh Waste 7%
Heat pumps,electricity 3%
Biomass 8%
Natural gas 64% Coal 16%
Peat 1%Others 1%
Generation 48%
Russia 27%
City Solutions
18%
Consumer Solutions 7%
EBITDA(1)
€1.5 bn
09.10.2019
Operations by business segment
• Listed on the Helsinki Stock Exchange since 1998
• Market capitalisation of ~EUR 19 bn
• Finnish State is a majority owner
Key shareholders
Production by source
• A leading clean-energy company across the Nordic region, the Baltic countries, Poland, and Russia
• A circular economy champion, providing solutions for sustainable cities, including waste, recycling, and biomass
• Rated BBB (CreditWatch Negative) by S&P and BBB (Rating Watch Negative) by Fitch
Description of Fortum
Note: All data as of FYE 2018 unless otherwise stated.(1) Comparable EBITDA defined as operating profit plus depreciation and amortisation less items affecting comparability.(2) In addition, Forum owns 50% of Stockholm Exergi AB with annual power generation 1.7 TWh/a and heat production of 8 TWh/a. Fortum also owns ~30% in TGC 1 with annual power generation 29.3 TWh/a and heat production of 29.8 TWh/a.
(2)
30.09.2019
Nuclear power30%
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Fortum’s geographical footprint
19
Nordic countries
Note: Ranking based on year 2017 pro forma figures.Sources: Fortum, company data, shares of the largest actors.
Russia Key figures 2018Power generation43.5 TWhHeat sales5.9 TWhElectricity customers2.4 million
PAO Fortum
Power generation29.5 TWhHeat sales20.7 TWh
#10
#8
#3
#1
#4
Sales €5.2 bnComparableEBITDA €1.5 bnTotal assets €22 bnPersonnel 8,300
Poland Baltic countries Sales by market area 2018Power generation0.6 TWhHeat sales3.5 TWh
Power generation0.7 TWhHeat sales1.4 TWh
Nordics 69%
Russia 20%
Poland 6%
Other 4%
€5.2 bn
x = Fortum market share ranking
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• Government legislative proposal on coal phase out rules expected in autumn 2019
• Roadmap for capacity closures agreed by capping maximum allowed coal capacity on the market: – In 2017 there was appr. 42.5 GW coal capacity in Germany
– After 2022 there can be max 30 GW, and after 2030 17 GW
– Latest 2038 all coal capacity must be closed
• Affected companies and regions will be compensated:– Coal regions will receive specific compensation to mitigate
the effects of structural change
– Compensation for hard coal operators expected to based on auctions
– Lignite operators negotiate compensations directly with the government
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Coal to be phased out in Germany by 2038 at the latest
”We welcome the Coal Commission’s proposal and hope that the
government will swiftly address the details necessary for the
implementation. The proposal highlights the
importance of gas during the transition towards a fully
decarbonised energy system and underlines the need for every utility to
have a solid decarbonisation strategy.”
- Fortum